How Acquihires Can Hurt Your Business

A number of companies I’ve worked with seem to have a pattern for innovating – instead of looking to build products and services based on the ideas of their own people, they typically scan the market for interesting companies to buy up, and acquihire them into the belly of the beast. I can see why the model seems to work for them, they let the startup founders take the risk, do all the work, gain traction (or at least develop some interesting IP) then give them an offer that they can’t refuse. I’ve seen a ton of companies do through this – Yahoo!, Google, Facebook, all of the major internet companies seem to do this – they seem to want to be innovative by snapping up these companies, instead of innovating internally. Well, maybe in addition to innovating internally, but from both the employee perspective and external company watcher perspective, it seems that they look like they aren’t capable of innovating anymore. This is, of course, untrue: there are plenty of innovators and innovative ideas within these companies. But without a comprehensive innovation program which helps to extract those ideas and reward the innovators, and the drive to take those ideas to market, they never seem to see the light of day.

I’ve seen plenty of situations where disgruntled employees look at a typical acquihire – and typically the founders of the acquihire get a huge payday – and realize that they had the same idea, years earlier, had mentioned it to their manager, and nothing ever came of it. The acquihire, on the other hand, is now an employee of the same company, not only enjoying a salary but typically a ton of stock and a huge cash payday.

What’s wrong with this picture? The acquiring company probably already had that innovative idea (or a similar one) and would have probably been able to coax it out of their employees and built it themselves at a fraction of the cost it cost the company to acquire the startup, had they had an effective innovation program.

Here’s an example: Summly, purchased by Yahoo! for $30M, was simply an algorithm. You don’t think that there likely were employees at Yahoo! who may have had similar algorithm ideas? I’ll bet they felt great when their company purchased a company doing a very similar thing for 300 times their salary?  The other thing that typically happens is that this innovative idea is killed as a standalone product, thus putting off all of its users. If it is rolled into another product, it typically never has the market share that it did through its predecessor.

It takes hard work to innovate, but it’s still cheaper, in the long run, to innovate internally. Your employees are an amazing source of ideas and innovation – instead of tagging those corporate strategy budgets to look outward for innovation, allocate it for internal idea and product development – you will probably find that you not only have a great source of innovation, you’ll have much happier employees as well.

— image: missy schmidt